ACIT, CHENNAI V. M/s. Rai Ispat P. Ltd., CHENNAI

ITA 1412/CHNY/2011

• Counselvise Citation: 141221714 RSA 2011
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Search and seizure; Unabsorbed depreciation
• Section: 143(3); 37; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER ITA NO.1412(MDS)/2011 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE V(3), CHENNAI VS. M/S. RAI ISPAT PVT. LTD., NO.6/13, NORTH AVENUE, KESAVAPERUMALPURAM, CHENNAI-600 028. PAN AAACR1743C. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.B.NAIK, COMMISSIONE R OF INCOME-TAX. RESPONDENT BY : NONE. DATE OF HEARING : 19 TH DECEMBER, 2011 DATE OF PRONOUNCEMENT : 20 TH DECEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI, DATED 2-5-2011. THE APPEAL ARISES OUT OF THE ASSES SMENT - - ITA 1412 OF 2011 2 COMPLETED UNDER SECTION 143(3) READ WITH SECTION 11 5WE(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES SUCH AS FACILITY MANAGEMENT. THE ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SECTION 143(3). THE ASSESSING AUTHORITY COMPLETED THE ASSESSMENT AF TER MAKING CERTAIN ADDITIONS. ONE OF SUCH ITEMS WAS TREATMENT OF THE INCOME FROM DATA ENTRY OPERATION AS INCOME FROM OTH ER SOURCES. ANOTHER WAS DISALLOWANCE OF THE EXPENDITURE CLAIMED TOWARDS REPAIRS AND MAINTENANCE. INTEREST PAID ON BANK TER M LOAN WAS ALSO DISALLOWED. THE ASSESSING AUTHORITY ALSO MADE ANOTHER ADDITION AS INCOME FROM OTHER SOURCES, WHICH ALSO I NCLUDED LONG- TERM CAPITAL GAINS AND PROFIT ON SALE OF MOTOR CAR. THE ASSESSING OFFICER HAS FURTHER DISALLOWED OFFICE EXPENDITURE A ND CURRENT YEARS DEPRECIATION CLAIMED BY THE ASSESSEE. ACCOR DING TO THE ASSESSEE, THE ASSESSING AUTHORITY FURTHER FAILED TO CONSIDER THE CARRY FORWARD OF BUSINESS LOSS INCLUDING UNABSORBED DEPRECIATION. - - ITA 1412 OF 2011 3 3. THE ABOVE ADDITIONS AND DISALLOWANCES WERE TAKE N UP IN FIRST APPEAL BEFORE THE COMMISSIONER OF INCOM E- TAX(APPEALS). THE COMMISSIONER OF INCOME-TAX(APPEA LS) DIRECTED THE ASSESSING AUTHORITY TO TREAT THE INCOM E FROM DATA ENTRY OPERATION AS BUSINESS INCOME, AS AGAINST TREA TING THE SAME AS INCOME FROM OTHER SOURCES, AS DONE BY THE A SSESSING AUTHORITY. THE COMMISSIONER OF INCOME-TAX(APPEALS) ALSO DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDI TURE TOWARDS REPAIRS AND MAINTENANCE. HE ALSO DIRECTED THE ASSE SSING AUTHORITY TO ALLOW THE CLAIM OF THE ASSESSEE TOWARD S INTEREST PAYMENT ON TERM LOAN. HE DIRECTED THE ASSESSING AU THORITY TO RECONSIDER THE ADDITION TOWARDS LONG TERM CAPITAL G AINS AND FURTHER DIRECTED TO REDUCE THE BLOCK OF ASSETS BY T HE AMOUNT OF PROFIT ON SALE OF CAR. HE ALSO DIRECTED TO ALLOW T HE EXPENDITURE CLAIMED BY THE ASSESSEE BY WAY OF OFFICE EXPENDITUR E. OUT OF THE DISALLOWANCE OF CURRENT YEARS DEPRECIATION, TH E COMMISSIONER OF INCOME-TAX(APPEALS) CONFINED THE DI SALLOWANCE TO THE CLAIM OF DEPRECIATION RELATING TO DATA ENTRY OPERATION RECEIPTS. HAVING TREATED THE DATA ENTRY OPERATIONS RECEIPTS AS BUSINESS INCOME, THE COMMISSIONER OF INCOME-TAX(APP EALS) - - ITA 1412 OF 2011 4 FURTHER DIRECTED THE ASSESSING OFFICER TO EXTEND TH E BENEFIT OF CARRY FORWARD OF BUSINESS LOSS AND UNABSORBED DEPRE CIATION. 4. IN RESPECT OF THE FBT (FRINGE BENEFIT TAX) ASSESSMENT MADE BY THE ASSESSING AUTHORITY, THE COM MISSIONER OF INCOME-TAX(APPEALS) ANNULLED THE ASSESSMENT ON T HE GROUND THAT THE ASSESSEE COMPANY DID NOT HAVE A SINGLE EMP LOYEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL SO AS TO BE ANSWERABLE TO THE PROVISIONS OF FBT. 5. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DISCUSSED ABOVE . THEREFORE THE REVENUE FILED THIS APPEAL BEFORE THE TRIBUNAL. 6. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS BEFORE THE TRIBUNAL:- 1. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCES MADE BY THE ASSESSING OFFICER ON - - ITA 1412 OF 2011 5 ACCOUNT OF REPAIRS & MAINTENANCE, OFFICE EXPENDITURE AND DEPRECIATION. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT AS PER THE ASSESSEES OWN ADMISSION NO BUSINESS WAS CARRIED ON DURING THE YEAR UNDER CONSIDERATION AND RECEIPTS WERE DIRECTED TO BE TAXE D UNDER THE HEAD INCOME FROM BUSINESS, ONLY ON ACCOUNT OF DEEMING PROVISIONS OF SECTION 176(3A). 3. AS REGARDS REPAIRS & MAINTENANCE AND OFFICE EXPENSES, THE LD. CIT(A) FAILED TO APPRECIATE THAT FOR THESE EXPENSES TO BE ALLOWABLE UNDER SECTION 37 THE THRESHOLD CONDITION IS THAT THE BUSINESS SHOULD HAVE BEEN CARRIED ON DURING THE YEAR. 4. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PERQUISITE FOR CLAIM OF DEPRECIATION IS THAT THE CONCERNED ASSETS MUST HAVE BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION. - - ITA 1412 OF 2011 6 5. THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE SET OFF OF CARRIED FORWARD BUSINESS LOSS AND DEPRECIATION. 6. THE LD. CIT(A) FAILED TO APPRECIATE THAT IN TERM S OF SECTION 72(10(I) SET OFF OF CARRIED FORWARD BUSINES S LOSS AND DEPRECIATION IS PERMISSIBLE ONLY IF THE BUSINESS IS CARRIED ON IN THE ASSESSMENT YEAR WHEREIN SET OFF IS CLAIMED AND SUCH PROFITS AND GAI NS ARE ASSESSED UNDER THE HEAD BUSINESS. 7. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT SINCE THE ASSESSEE HAS NOT MET THE CONDITION OF CARRYING ON THE BUSINESS, SUCH SET OFF IS NOT PERMISSIBLE. 8. THE LD. CIT(A) ERRED IN REMITTING BACK THE ISSUE OF CLAIM OF INTEREST EXPENDITURE TO THE ASSESSING OFFI CER FOR VERIFYING THE CORRECTNESS AND PURPOSE OF THE CLAIM. 9. IT IS SUBMITTED THAT THE POWER OF REMITTING AN I SSUE IS NOT AVAILABLE TO THE LD. CIT(A) IN VIEW OF THE AMENDED PROVISIONS OF SECTION 251 W.E.F.1-6-2001 - - ITA 1412 OF 2011 7 AND THE LD. CIT(A) OUGHT TO HAVE CAUSED THE VERIFICATIONS BEFORE PASSING THE ORDER. 7. SHRI R.B.NAIK, LEARNED COMMISSIONER OF INCOME- TAX, APPEARED FOR THE REVENUE AND ARGUED THE CASE A T LENGTH. NOBODY WAS PRESENT FOR THE RESPONDENT-ASSESSEE. WH EN THE APPEAL WAS CALLED ON FOR HEARING LAST TIME, THERE W AS NO APPEARANCE ON BEHALF OF THE ASSESSEE. THEREFORE, N OTICE OF HEARING WAS DIRECTED THROUGH THE INCOME-TAX DEPARTM ENT. THE INCOME-TAX DEPARTMENT HAS CAUSED SERVICE OF THE NOT ICE AND THE ACKNOWLEDGEMENT IS AVAILABLE ON RECORDS. AS THE AS SESSEE IS NOT APPEARING EVEN AFTER SERVICE OF NOTICE, WE PROC EED TO DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASSESSEE. 8. AS FAR AS THE INCOME-TAX ASSESSMENT IS CONCERNE D, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ACCEPTE D ALL THE GROUNDS AND CONTENTIONS OF THE ASSESSEE EXCEPT A SM ALL PORTION OF CURRENT YEARS DEPRECIATION. WHILE DECIDING THE VARIOUS ISSUES, WE ARE AFRAID THAT THE COMMISSIONER OF INCOME-TAX(A PPEALS) HAS NOT APPLIED HIS MIND IN THE BACKGROUND OF THE FACTS OF THE PRESENT - - ITA 1412 OF 2011 8 CASE. FOR EXAMPLE, IN THE CASE OF DISALLOWANCE OF INTEREST ON BANK LOAN, THE COMMISSIONER OF INCOME-TAX(APPEALS) JUSTIFIES THE CLAIM ONLY ON THE GROUND THAT LOANS AND ADVANCE S HAVE ALSO GENERATED SOME INCOME IN THE HANDS OF THE ASSESSEE EVEN THOUGH FUNDS OF THE ASSESSEE WERE UTILIZED FOR GIVI NG SUCH LOANS AND ADVANCES. THAT CANNOT BE A FAIR REASONING. WH AT IS THE AMOUNT OF LOAN AVAILED AND THE INTEREST PAID BY THE ASSESSEE ON THAT LOAN AMOUNT AND UPTO WHAT EXTENT THE FUNDS WER E DIVERTED FOR GIVING LOANS AND ADVANCES AND WHAT IS THE EXTEN T OF INCOME EARNED OUT OF THAT AND SUCH SIMILAR MATTERS HAVE TO BE DISCUSSED BEFORE OVERRULING THE OBJECTIONS RECORDED BY THE AS SESSING AUTHORITY. LIKEWISE, REGARDING THE NATURE OF THE D ATA ENTRY OPERATION RECEIPTS, THE COMMISSIONER OF INCOME-TAX( APPEALS) SEEMS TO BE CARRIED AWAY BY THE GENERAL ARGUMENTS A DVANCED BY THE ASSESSEE. NOW, LOOKING INTO THE VARIOUS ISS UES DISCUSSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS), ATLEAST WE SHOULD SAY THAT THE OBJECTIONS OF THE ASSESSING AUTHORITY HAVE NOT BEEN PROPERLY CONSIDERED BY THE COMMISSIONER OF INCOME- TAX(APPEALS). THEREFORE, WE FIND THAT THE ISSUES D ISCUSSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) HAVE TO BE - - ITA 1412 OF 2011 9 RECONSIDERED BY THE ASSESSING AUTHORITY AFTER GIVIN G DUE IMPORTANCE TO THE DISCUSSIONS MADE BY THE COMMISSIO NER OF INCOME-TAX(APPEALS) ON THOSE POINTS. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE ORDER O F THE COMMISSIONER OF INCOME-TAX(APPEALS) ON THE ISSUES A RISING OUT OF THE INCOME-TAX ASSESSMENT AND DIRECT THE ASSESSI NG AUTHORITY TO RECONSIDER ALL THOSE POINTS AFTER HEARING THE AS SESSEE. WE ALSO MAKE IT CLEAR THAT WHILE RE-EXAMINING THOSE IS SUES, THE ASSESSING AUTHORITY HAS TO GIVE DUE CONSIDERATION T O THE DISCUSSION MADE BY THE COMMISSIONER OF INCOME-TAX(A PPEALS) ON THOSE POINTS. 9. REGARDING THE FBT ASSESSMENT, WE AGREE WITH THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THERE IS N OTHING ON RECORD THAT WOULD JUSTIFY SUCH AN ASSESSMENT. THAT ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IS UPHELD. THE REVENUE FAILS ON THE ISSUE OF FBT ASSESSMENT. 10. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS TREATED AS PARTLY ALLOWED. - - ITA 1412 OF 2011 10 ORDER PRONOUNCED ON TUESDAY, THE 20 TH OF DECEMBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 20 TH DECEMBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.